Content Published Last Week

1. Burford Capital: Law Firm and Funder Relationship

2. Evolution Gaming: Game Development Process

3. Atlassian & Cloud Migration: Partner Perspective

4. Wayfair CastleGate Economics: Supplier's Perspective

5. Wayfair: German Market Challenges

6. Becle: CRT Inventory Accuracy, Pricing Dynamics & Local Ecosystem

7. R1 RCM: Healthcare Revenue Cycle Management Overview

8. US LTL: A Non-Asset-Based Network Structure

Burford: Law Firm Perspective

This interview with a Partner of a US patent law firm and leading patent litigator explores the relationship between litigation funders and law firms. This is important for multiple reasons. One argument from Burford skeptics suggests funders are at the mercy of adverse selection: given funders originate cases from law firms, funders will only receive the cases law firms don’t want to take on contingency themselves:

Quinn Emanuel, being a wealthy law firm, would take a case on contingency if they really liked it, rather than share the upside with a litigation funder. The cases they show to litigation funders are those they deem too risky to take on themselves. Burford accepts this because they believe having Quinn Emanuel on their side is more valuable than the risk of taking on a case that Quinn Emanuel wouldn't take on contingency. It's a calculated decision. - Partner at US Patent Law Firm

But how much contingency work can top law firms really take on? Law firms are partnerships with equity partners that expect cash distributions each year. How much of their capital are they really willing to commit to complex litigation each year?

Another important question surrounds how funders originate cases from law firms. We've long believed an under-appreciated element of litigation finance is deal origination; the best funders get access to the best assets. And law firms are a crucial origination channel for funders. So how and why do some law firms partner with funders? For example, why is Quinn Emanuel such a deep partner to Burford? And how can investors handicap such a risk to funders?

Another important topic explored in this interview is the alignment of incentives across the funder-lawyer-claimant relationship. Many critics argue that if a case is funded, lawyers may not feel the urgency to settle early. Hourly fee structures suggest a lengthy trial is most economical for law firms. Funders themselves also don't want a settlement that doesn’t meet their IRR. Although claimants have the right to determine when and how to settle, it's questionable how much power the claimant really has in funded cases:

Funders need lawyers, but they also want cases to resolve, and their interests don't align with the lawyers'. If I'm a lawyer receiving litigation funding, I'm not in a hurry to settle the case. I would advise my client to go to trial for a larger payout. The funder, on the other hand, has to report returns to their investors in a year, and the trial might not happen for another two years. There's no alignment there - Partner at US Patent Law Firm

Finally, there are also some funders receiving insurance of the principal amount of the case funding. This has the potential to level-set the industry if adopted at scale:

We then discovered that insurance was available. The insurer was willing to protect the principal investment that this funder was making in these three cases, as long as the funder was willing to pay a premium, let's say, 15% of the funding amount. So, we went ahead with it. Now, the funder is funding three cases in process. They're retaining a vast majority of the upside from their litigation funding investments, but at least they know that their principal is protected. With the insurance policy in hand, they now have a lot of options. They could go out to the market and borrow against the insurance policy, use that money for other purposes, or they could just let it ride. They could even decide to invest more in litigation funding. This is a great leveler of the playing field because they can compete with Burford Capital. - Partner at US Patent Law Firm

This interview covers all of these points in detail and discusses the positioning of Burford relative to other large funders like Fortress. This interview will shortly be followed by a survey of GCs and law firm customers of funding to understand the dynamics of the industry in more detail.

Evolution Gaming: Game Development Process

We interviewed a Former EVO Executive who now works at a competitor to understand the game development process and how to make unique Live Casino games.

Our focus depends on various factors such as the markets where we currently operate, the operators, and the player base. For instance, if we have a significant player base in India and anticipate good revenue from there, we focus more on offering games popular in that region like Andar Bahar and Matka. Conversely, if we have no players from a certain area, it wouldn't make sense to develop games for that region. - Former Evolution Gaming Executive

With global distribution and >80% market share in most jurisdictions, Evolution has a potential advantage when creating and launching new games.

At the very least, the game should cover its running costs, including salaries and studio operations. The return on investment varies from game to game. For instance, if you launch a game like Roulette, you can expect a quicker return on investment compared to a less popular, innovative game like Casino Hold' em. - Former Evolution Gaming Executive

Given the relative market share differences, Evolution can also take more risk with launching new games and expect to at least breakeven.

Evolution is releasing many games in a year, but out of their last four games, I only liked one. The number of games is not as important to me as the quality. They released Crazy Time several years ago and haven't produced anything close to it since. They can release a poor-quality game, but it will still be successful and return the investment due to their large player base. If every player does a single minimum bet, they are already covering their costs. - Former Evolution Gaming Executive

The interview goes on to explore EVO’s potential structural advantage in incubating new live casino hits and how smaller providers can compete.

Atlassian & Cloud Migration: Partner Perspective

A Current Atlassian Partner discusses how customers are migrating to its new cloud offering:

For a customer with 1,000 seats, I would expect them to choose Premium. It's rare for us to sell Enterprise, and we seldom sell any Standard licenses. If I were to provide a breakdown, I would say 70% choose Premium, 15% opt for Enterprise, and the remaining 15% go for Standard. Standard is typically for smaller clients or those who only require basic use of Jira. We primarily sell Premium or Enterprise. - Current Atlassian Partner

The migration to the data center / cloud plan could be a significant source of growth for Atlassian as customers are upsold to higher priced tiers.

I believe the majority of those users, if they haven't migrated already, will migrate to Jira standard, potentially Jira Premium, but in a smaller environment. That's what we're seeing with these smaller environments that haven't migrated yet. As for the large enterprise clients that haven't migrated, they're definitely going to be going Premium or Enterprise, but that's going to be over the next year or two, not by 2024. - Current Atlassian Partner

The interview goes on to discuss the potential net revenue growth and churn from TEAM’s migration strategy.

Wayfair CastleGate Economics: Supplier's Perspective

Suppliers report that goods flowing through Wayfair's CastleGate network see lower average damage and return rates compared to other retailers. In turn, this potentially lowers the wholesale price suppliers charge Wayfair, enabling the company to offer competitive retail prices to end customers.

"We have a base price for all e-commerce platforms. From that base price, it increases based on how our business performs on each platform. So that 7% (wholesale markup charged to Wayfair) is not bad compared to other e-commerce platforms where we add up more than that due to high return rates. For instance, Overstock has about a 20% return rate. So we factor in about 15% of the base price. - Current Wayfair Supplier

In this interview, a Wayfair supplier sheds light on the economics of items sold through CastleGate, and how it compares to competing online platforms.

Wayfair: German Market Challenges

Wayfair knows that competing with Amazon on price is difficult and has accepted being ~10% more expensive, hoping that convenience and assortment will compensate.

Regarding competitors, one thing that struck me was our constant reference to Amazon in our playbook. Our goal was to be 10% more expensive than Amazon, which was our main competitor. - Former Head of EU Commercial Analytics at Wayfair

In this interview, the Former Head of EU Commercial Analytics at Wayfair sheds light on the company's European operations, highlighting the challenges Wayfair faces across Germany and EU.

Becle: CRT Inventory Accuracy, Pricing Dynamics & Local Ecosystem

Over the past weeks, we have published a series of interviews about the blue agave pricing trends and sourcing environment. In an interview with a farmer heading the Consejo Regulador del Agave (CRA), the CRT inventory reports and on-the-ground prices are discussed further.

"Three years ago, and even up to today, they lack the human resource capacity to visit the fields due to the number of plantations and new producers. We're talking about an increase of 30,000 new agave producers. They simply don't have the capacity to go out to the fields to verify them. They base their information on what everyone says at the office in the CRT building. People claim to have established 10,000 plants, but in reality, they've established 2,000 or 3,000 less. The figures that the producers provide are approximations, and the CRT has this information."

The price surge for blue agave has attracted many new farmers to the market and, according to this farmer, the CRT hasn't been able to verify the inventory as they used to. This challenges the accuracy of the CRT's inventory reports. The question remains where long term agave prices might normalize and what a lower agave prices means for established and newer Tequila brands.

R1 RCM: Healthcare Revenue Cycle Management Overview

R1 RCM is a healthcare Revenue Cycle Management company used by providers to manage the billing, payment and collections process. A Former Ensemble Health Partners executive explains how mission critical the product really is:

If you consider the healthcare sector, health systems currently operate with between 45 and 60 days of cash on hand. That's not a significant amount. A major system outage, for instance, the inability to issue a bill for 30 days, could lead to fears of not meeting payroll. The revenue cycle faces much more pressure in healthcare than in other industries. - Former Ensemble Health Partners Executive

US LTL: A Non-Asset-Based Network Structure

Even though starting a non-asset-based LTL business minimizes the amount of capital required to operate, it does not offer the same level of customer service as a scaled asset-bassed LTL carrier.

The main difference is that Old Dominion offers shorter transit times. If a customer needs their shipment delivered within a specific timeframe, they might not choose us. - Former President and CEO of Clear Lane Freight Systems

In this interview, the former President of Clear Lane Freight Systems explains how a shipment flows through a non-asset-based LTL network.